ORDER
Tirath S. Thakur, J.
1. These Writ Petitions call in question the Constitutional validity of Section 6B(i)(ii) and (iii) of the Karnataka Sales Tax Act, 1957 as amended by Karnataka Sales Tax Amendment Acts, 1987 and 1990. Also under challenge is the validity of Notification dated 30th of March and 30th of May 1996 whereby the Government have restricted the exemption granted to life saving drugs and withdrawn the reduced rate of turn over tax payable under Section 6B of the Act in regard to Medicinal and Pharmaceuticals preparations. The controversy arises in the following backdrop.
2. By a Notification dated 30th March 1996, the Government reduced with effect from 1st day of April 1996, turn over tax payable under Section 6B of the Act to 1% in respect of certain class of goods including medicinal and pharmaceuticals preparations. By another Notification of even date, the Government exempted with effect from 1st of April 1996, tax payable under Section 5 of the Act, in respect of sale of life saving drugs specified in the schedule to the said Notification. Two months later by a third Notification dated 30th of May 1996, the Government amended with effect from 1st of June 1996 the earlier of the two Notifications mentioned above to the extent that the Sl.No. (iii) and the entries relating thereto were omitted from the same. The net result was that with effect from 1st of June 1996, the reduced rate of tax on the sale turn over of medicinal and pharmaceutical preparations, was no longer available. Aggrieved by the withdrawal of the said benefit as also the withdrawal of total exemption on sale of life saving drugs the petitioners have filed the present petitions questioning the constitutional validity of Section 6B(i)(ii)(iii) of the Act and the Notification aforementioned.
3. Appearing for the petitioners Mr. Gandhi strenuously argued that Notification dated 30th May 1996, was not one referable to the powers vested in the Government under Section 8A(3) of the Act. He urged that even though the Government could invoke Section 8A(3) to cancel or vary a Notification issued under Sub-section (1) and 2-A of Section 8A yet the impugned Notification did not either expressly or otherwise purport to do so. The argument was that since Notification dated 30th March 1996, granting reduction in the rate of turn over tax, continued to subsist the deletion of item (iii) from the same was not tantamount to a cancellation within the meaning of Section 8A(3). Reliance in support was placed upon the decision of the Supreme Court referred in AIR 1951 SC 332.
4. The power to cancer a Notification issued by the Government granting exemption or reduction in the rate of tax is inherent in the Government for the power to grant such an exemption must necessarily carry with it the power to withdraw the same should the Government decide to do so. This power has been recognised in specific terms by the provisions of Sub-section (3) of Section 8A and was rightly not disputed by Mr. Gandhi. That being so, the deletion of item (iii) from the Notification granting reduction in the rate of tax can mean nothing except cancellation of the notification in regard to medicinal and pharmaceutical preparations. No other meaning can be attributed to the deletion of item (iii) nor was any suggested by Mr. Gandhi. The very fact that the present notification continued to remain operative in regard to the remaining categories of goods specified therein, cannot possibly mean that the deletion of para (iii) relating to medicinal and pharmaceutical preparations can be ignored or treated to be meaningless or in-consequential. The only purpose behind the deletion of para (iii) of the Notification was to cancel the same and withdraw the benefit of reduced rate of tax qua the sales turn over of medicinal and pharmaceutical preparations. I have therefore no hesitation in rejecting the first limb of Mr. Gandhi's argument.
5. Learned Counsel next argued, that even if the deletion of item (iii) of Notification dated 30th March, 1996, amounts to cancellation of the same, in so far as pharmaceuticals preparations were concerned, yet any such cancellation would be illegal being in violation of the promise held out by the Finance Minister on the floor of the State Legislature. Reliance was in this regard placed by Mr. Gandhi upon the Budget Speech by Hon'ble Finance Minister in the Assembly, according to which the Government proposed to levy a turn over tax on medicinal and pharmaceutical preparations at 1% as against the higher rate generally prescribed under Section 6B. It was urged that the promise was meant to culminate in an appropriate amendment to Section 6B so as to prescribe a rate of 1% only on the sale turnovers of such preparations. This amendment did not admittedly fructify. The Government instead issued Notification dated 30th March 1996, which achieved the object of reducing the rate of turn over tax to 1%. The withdrawal of the said reduced rate, contended Mr. Gandhi was against the legislative intent and promise held out by the Government on the floor of the house, and could therefore be struck down on that ground alone. I find no merit in this submission either. Tax proposals made by the finance Minister on behalf of the State Government on the floor of the House remain in the realm of proposals and do not give rise to any enforceable legal right in favour of any citizen who may have eventually benefited from any such proposal, if the same were made good. Such proposals are significant to the extent they spell out the Policy which the government proposes to adopt; but even when they are discussed in the Legislature they remain no more than a view point, which may be translated into action by the enactment of a Statutory provision for a due and proper implementation of the Policy or left to the Government to implement the same within the existing legal frame work. It is not disputed that no Statutory provision was either enacted nor an existing one amended to give effect to the proposal made in the Budget speech. In the absence of any Statutory recognition of the proposed reduction, it is difficult to acknowledge any vested right in any dealer to insist that the Government must stand by and honour its Policy statement. The Budget speech of the Finance Minister does not therefore advance the case of the petitioner let alone established a legal right that can be enforced through the medium or prerogative writ from this Court. I may at this stage point out that the challenge to Notification dated 30th of May 1996 exempting sales turn over on life saving drugs only from the payment of tax under Section 5 of the Act, is also entirely anchored on the plea that the said Notification was inconsistent with the Budget proposal made by the State Government in regard to such drugs. Reliance was placed by Mr. Gandhi upon para 138 of the Budget Speech delivered by the Finance Minister in which the Government proposed to issue a comprehensive Notification for purposes of exempting life saving drugs including drugs for treatment of Aids, Cancer, Leprosy, Malaria and Tuberculosis etc. It was urged that instead of continuing the exemption earlier enjoyed by the life saving drugs from payment of sales tax as also turn over tax under Section 5 and 6B of the Act, the Government had contrary to the promise made by it, limited the exemption to tax payable under Section 5 alone thereby rendering sales turn over on life saving drugs liable to tax under Section 6B. For the reasons stated earlier, the challenge to this Notification must also fail.
6. Mr. Gandhi next argued that the effect of cancelling the Notification and withdrawing the reduction earlier granted in the rate of turn over tax, was to subject such turnovers to payment of an oscillating rate of tax prescribed by Section 6B. This rate being higher than 1% contended the learned Counsel, the cancellation in substance amounted to imposing a tax at a rate higher than the one that was proposed in the Budget Speech of the Finance Minister which was according to the learned Counsel wholly impermissible. This submission too is in no way less fallacious than the rest. The power to reduce the rate of tax and the power to cancel or withdraw any such reduction not being in dispute, once the reduction granted is withdrawn or cancelled the effect of any such cancellation would be that tax at the rate otherwise prescribed under the Act would become payable. Any such liability to pay tax at a higher rate gets suspended or modified by reason of the Government reducing the rate in exercise of the power vested in it, but once the Government decide to withdraw any such benefit of exemption or reduction, the protection against the levy of higher rate of tax payable under the Act, would disappear restoring the position that would otherwise hold good, under the principal Act. It is not as though by cancellation or withdrawal of a Notification issued by the Government, a levy which is not otherwise sanctioned by the Act, comes into effect. On the contrary, a levy which has otherwise been sanctioned, is modified or suspended temporarily till such time, the Government grants the benefit of exemption or reduction to any particular class of goods or dealers. The withdrawal of any such protection in the exigencies of the taxation policies of the State Government cannot therefore he interpreted as a levy of tax at a rate higher than the one permissible under the Act.
7. Mr. Gandhi, however argued that the proposal made to the Legislative Assembly having been approved, the legislative intent must be understood to be to levy the turn-over on pharmaceuticals and medicinal preparations at a maximum of 1%. The argument obviously does not take note of the all important difference between a proposal mooted before the Legislature by the Government and the legislative intent behind a statutory provision enacted by the former. So long as an enactment on the subject remains un-altered, the validity of the action taken by the Government in granting or refusing exemption has to be judged by reference to the Statute. Notifications issued in exercise of any such Statutory power cannot be questioned or interfered with on the assumption that the tax proposals presented before the Legislature for a Debate had materially altered the purport of the enactment or otherwise established an abiding commitment of the Government to pursue a particular policy. As a matter of fact, Notifications issued by the Government under the Act, have in terms of Section 39 of the Act, to be laid before the State Legislature and if both the Houses of the Legislature agree to make any modification in the Rule or the Notification so issued, or both the Houses agree that the Rule or Notification should not be made the Rule or Notification shall thereafter have the effect only in such modified form or be of no effect as the case may be, except that any such modification or annulment shall be without prejudice to the validity of anything previously done under any such rule or notification. The provisions of Section 39 notwithstanding the power to issue a Notification is vested in the Government. It is therefore unaffected by the proposals that it may have made in the Budget. What the Legislature can do is to modify or annul a Notification, in which event, the same shall have effect only in the modified form or not at all as the case may be. The Notifications issued in the instant case have not been shown to have been modified or annulled by the Legislature. Till such time that is done, their efficacy cannot be questioned on the ground that in the Budget proposals the Government had intended to adopt a particular policy or prescribed a particular rate for a class or category of goods.
8. That brings me to the last and the only other submission made by Mr. Gandhi relating to the Constitutional validity of Section 6B of the Act. The argument in this regard was two fold. Firstly it was urged that Section 6B was beyond the legislative competence of the Legislature as the same levies a tax not on the sales made by the petitioners but on their total sales turn over in a year. Since the dealer was forbidden from passing on the tax liability to the consumer under Section 18(3) of the Act, it was a tax on the income of the dealers and not on the sales made by them, argued Mr. Gandhi. Alternatively, he urged that Section 6B was discriminatory in that it provided an oscillating rate of tax depending upon the turn over of the dealer. He contended that if a dealer's turn over exceeded 1 Crore even by a few hundred rupees, he is liable to pay turn over tax at a rate higher than what a dealer whose turnover was less than 2 Crores was liable to pay. Similarly, a dealer whose turnover was in excess of 5 crores was subject to a higher rate of tax, without giving to him the benefit of the lower slab rate in so far as his turn over below 2 crores was concerned. On the analogy of the system prevalent under the Income-tax Act, for calculating the total tax liability, argued Mr. Gandhi the Assessee must be given the benefit of the lower tax rate, qua the turnovers which fell within the purview of paras (i) and (ii) of Section 6B before his turn over in excess of 5 crores could be taxed at the rate prescribed in para (iii) thereof.
9. In B.P. AUTOMOBILES AND ORS. v. STATE OF KARNATAKA AND ANR., 55 STC (1984) P.93one of the questions that fell for consideration before a Division Bench of this Court was as to the true nature of a turn over tax, and in particular whether or not turnover tax was a tax on the sales effected by a dealer. The contention was that the State Legislature had no authority to levy a turn over tax as any as such tax would be a tax neither on sale nor purchase of goods within the meaning of the said Entry. Relying upon the decision of the Supreme Court in S.KODAR v. STATE OF KERALA, : [1975]1SCR121 the Division Bench repelled the argument in the following words:
'This argument has no merit. It is no doubt true that the power to tax is available in relation to a 'sale' or purchase as recognised by the general law and transactions which are not really sales or purchases according to the established concepts cannot be subjected to tax. But a tax on 'turnover' is in reality a tax on the aggregate of the sales or purchases, as the case may be, of a dealer during a year.'
10. A similar question was considered by yet another Division Bench of this Court in SHANTILAL & BROTHER v. STATE OF KARNATAKA AND ANR., 59 STC 178 where relying upon the judgment of the Supreme Court in Kodar's case (supra) and in HOECHEST PHARMACEUTICALS LTD. AND ANR. v. STATE OF BIHAR AND ORS., : [1985]154ITR64(SC) the Court held that just because the additional tax on the sale of goods could not be passed on to the purchaser, the levy did not become a tax on income. The Court declared that even though sales-tax was according to the accepted notions intended to be passed on to the buyer yet the same was not an essential characteristic of tax on sales. The power of the legislature to impose a tax on sales did not depend upon its making a provision for the sellers to collect the tax from the purchasers. The following passage from the judgment of the Supreme Court in HOECHEST PHARMACEUTICALS case settles the legal position authoritarively.
'Merely because a dealer falling within the class defined under Sub-section (1) of Section 5 of the Act is prevented from collecting the surcharge recovered from him, does not affect the competence of the State Legislature to make a provision like Sub-section (3) of Section 5 of the Act nor does it become a tax on his income. It is no doubt true that a sales tax is, according to the accepted notions, intended to be passed on to the buyer, and the provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales-tax legislation. It is not an essential characteristic of sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for sellers to collect to tax from the purchasers. Whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the Legislature : see Tata Iron & Steel Company Ltd., v. State of Bihar : [1958]1SCR1355 , J.K. Jute Mills Co. Ltd., v. State of Uttar Pradesh : [1962]2SCR1 and S.Kodar v. State of Kerala : [1975]1SCR121 . The contention based on article 19(1)(g) cannot therefore be sustained.'
11. I have therefore no hesitation in rejecting the argument that the turn over tax levied under Section 6B is a tax on the income of the petitioner/dealers or that the essential character of a tax on the total sales effected by them in one year gets altered just because the petitioner is disabled from passing on the liability to the purchaser.
12. Coming then to the alternative argument of Mr. Gandhi, suffice it to say that in matters relating to taxation the Legislature enjoys considerable latitude for purposes of classifying goods as also fixing rates of taxes for the same. That is because, the task of formulation of a taxation policy and classification of those to be subjected to tax and prescribing the rates for such taxation, are complex processes involving diverse and varied considerations and criteria. Law therefore concedes considerable latitude and play at the joints to the Legislature in the matter of choice of persons and things, it may choose to tax. The Legislature is entitled to choose, objects, persons, methods and even rates of tax so long as the choice made by it is within the para meters of the Constitutional pledge of equality. It is equally well settled that in matters of taxation the Courts cannot meticulously scrutinise the impact of burden of a tax law on different persons or interests but can only strike down the law when satisfied that the method adopted is arbitrary, capricious or otherwise fanciful or unjust. If the Legislature had adopted one method for imposition of the tax burden the Court cannot interfere on the ground that the Legislature should have adopted another method which was in the opinion of the Court more reasonable. See 1) KHANDIGE SHAM BHAT AND ANR. v. AGRICULTURAL INCOME-TAX OFFICER, KASARAGOD AND ANR., : [1963]48ITR21(SC) S.K. DUTTA INCOME-TAX OFFICER AND ORS. v. LAWRENCE SINGH INGTY, : [1968]68ITR272(SC) N. VENUGOPAL RAVI VARMA RAJAH v. UNION OF INDIA AND ANR., 1969 SC 1664 4) V. VENUGOPALA RAVI VARMA RAJAH v. UNION OF INDIA AND ANR. : [1969]74ITR49(SC) TWYFORD TEA CO. LTD. AND ANR. v. THE STATE OF KERALA AND ANR., : [1970]3SCR383 B.P. AUTOMOBILES AND ORS. v. STATE OF KARNATAKA AND ANR. : 1983(2)KarLJ105
13. Merely because the Legislature has in its wisdom classified the turnover in three categories falling under Clause (i), (ii) & (iii) of Sub-section (i) to Section 6B would not therefore be per se arbitrary or discriminatory. The classification made is based on the turnover of the dealers those with lesser turn over paying a lesser rate of tax than others with higher turn overs. The classification of dealers on the basis of their turn over cannot be said to be unintelligible or arbitrary, nor can the levy of a higher rate of tax in the case of those with a higher turn over be said to be discriminatory. Classifications made on economic considerations are permissible and do not offend Article 14, especially when those falling in a particular category are treated similarly. Equally untenable is the argument that while levying the tax the dealers ought to have been necessarily given the benefit of the lesser rate of tax qua the turn over falling in the lower slab, thereby recovering tax at the higher rate in regard to only the excess. As to what should be the method of levy calculations or recovery of the tax in a matter that has to be determined by the legislature. Just because there could be another method also, or that any such alternative method could be more acceptable or convenient for the dealers is no reason for the Court to strike down the provision or find fault with the same. So also it cannot be said that since the method recommended by the petitioners is recognised or adopted in another enactment, the same must be adopted as the best conceivable method. The Legislature having classified the dealers based on their turn over and prescribed a varying rate of tax for those falling in different categories envisaged by such classification; it would not be possible to interfere with the system of levy and collection only on the ground that the name is either harsh or less benevolent than what it could possibly be.
14. In the result these petitions fail and are accordingly dismissed but without any orders as to costs.